The Pension
Protection Act of 2006 (PPA) was signed into law on August 17, 2006. The PPA is widely considered landmark
legislation which is responsible for the most comprehensive changes
to the Internal Revenue Code of 1986 (Code) and Employee Retirement
Income Security Act of 1974 (ERISA) relating to all types of retirement
plans since the enactment of ERISA in 1974. Although the PPA's primary
purpose was to enact retirement plan reforms, its passage also addressed
non-retirement issues. Titles I through XI of the PPA deal specifically
with retirement plan issues, while the remainder of the Act, Titles
XII through XIV, relate to non-retirement matters. The trust manual
review of PPA reforms and changes will concentrate on the retirement
plan components of the PPA.

Among
the numerous retirement plan changes enacted, the PPA established
new minimum funding standards for single-employer and multi-employer
defined benefit pension plans; it extended interest rate rules for the funding standard account, requiring the use of a rate
based on long-term investment grade corporate bonds rather than 30-year
Treasury securities; it amended the interest rate calculation for
lump sum distributions; it requires fully-funded single-employer plans to pay variable-rate premiums to the Pension
Benefit Guaranty Corporation; it provides alternative funding rules
for commercial passenger airline defined benefit plans, and establishes
basic requirements relating to funding notices provided by defined
benefit plans; it permits fiduciary advisers to give investment advice
to participants or beneficiaries under specified conditions; it establishes
rules governing the treatment of defined benefit pension plans which
fail to comply with age discrimination prohibitions; and it increases
deduction limits for single-employer and multi-employer plans. The
PPA also permits annuity contracts and life insurance contracts to
include long-term care insurance provisions; it mandates defined contribution
plans holding publicly traded securities to provide employees with:
(a) the opportunity to divest employer securities; and (b) at least three investment options other than employer securities;
under certain conditions, it permits employers to automatically enroll
employees in defined benefit plans; it establishes rules governing
the division of pension benefits between divorced parties; it authorizes
the Secretary of the Treasury to establish or change the Employee
Plans Compliance Resolution System and any other employee plans correction
system or policies; and it prohibits a reduction of unemployment compensation
resulting from pension rollovers. It also makes permanent some rules
from the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) which were scheduled to expire in 2010. These include maximum contributions
to IRAs and 401(k)s, and “catch up” contributions for individuals 50 and older. It also ensures the permanency of
Roth IRAs and Roth 401(k)s, increased IRA rollover ability, mandatory
cash outs of de-minimis account balances, hardship distributions from
401(k) and 403(b) plans, and Section 529 college savings plans.

In
other areas unrelated to retirement plans, the PPA amends the Internal
Revenue Code relating to the treatment of certain transactions involving
charitable contributions, tax-exempt organizations, and supporting
organizations; it amends the EGTRRA to permanently extend qualified
tuition program provisions; and contains provisions dealing with mining,
trade, tariff, and import duty issues.

Although
the PPA modifies both the Code and ERISA, the discussion below is
generally confined to the changes in ERISA.

Outlines
the new funding standards and required contributions.
It also identifies a new category of plan ("at risk"), and provides special rules for protecting assets of such plans. Minimum required contributions to single-employer defined benefit pension plans
after 2007 should be sufficient to permit the plan
to achieve its "target normal cost" (the present value of benefits expected to accrue during the plan year).

Delays
the imposition revised interest rate calculations
for certain eligible government contractors until the earliest of the plan year for which the plan ceases to be an eligible
government contractor plan, the effective date of
the Cost Accounting Standards Pension Harmonization
Rule, or 2011.

Creates
minimum funding rules for multi-employer defined
benefit plans effective for plan years after 2007.
It defines how plan assets are to be valued and what constitutes a fully funded plan. These new rules modify amortization periods, reducing the amortization of past
service liability and changes in actuarial assumptions
resulting from gain and loss experience, from 30
to 15 years. The rules also require actuaries to
provide their "best estimate of anticipated experience under the plan," and to periodically review, and change, interest rate assumptions which are
not within permissible ranges.

Mandates
the use of additional funding rules for multi-employer
defined benefit plans which fall under “endangered” or “critical” definitions. Plans falling under the "endangered" status definition are required to comply with a “funding improvement plan,” plans considered to be "critical" must conform to a “rehabilitation plan.” Plan actuaries are required to certify whether or not a plan is "endangered" or "critical" by the 90th day of each plan year. Plans less than 80% funded are considered
to be "endangered" or "seriously endangered;" plans less than 65% funded are considered to be "critical." "Endangered" and "seriously endangered" plans must develop funding improvement plans that will increase the plan's funding
percentage over 10 or 15 years, respectively. "Critical" plans must adopt rehabilitation plans that will increase the plan's funding
percentage within 10 years. Actuaries must also certify
whether or not such plans meet progress requirements
under their funding improvement or rehabilitation
plans. An actuary's failure to certify the status
of a plan (whether or not it is in "endangered" or "critical" status) by the 90th day of each plan year to the Secretary of the Treasury and
the plan sponsor is treated as a failure to file the annual report.

Strengthens
insolvency protection rules covering multi-employer
plans. This provision lengthens the insolvency testing
period from 3 to 5 years for plans whose asset value
is not at least equal to three times the value of
anticipated benefit payments.

Modifies
rules on employers withdrawing from multi-employer
pension plans. Employers are subject to withdrawal
liability for unfunded vested benefits. This section
repeals the limitation on the withdrawal liability
of insolvent employers, and updates rules relating
withdrawal liability based on the employer's net
worth.

Section
205 Prohibition on Retaliation Against Employers Exercising their Rights to Petition
the Federal Government

Updates
Section 510 ERISA, making it "unlawful for the plan sponsor or any other person to discriminate against any
contributing employer for exercising rights under
this Act or for giving information or testifying
in any inquiry or proceeding relating to this Act
before Congress.''

Section
206 Special Rule for Certain Benefits Funded Under an Agreement Approved by the
Pension Benefit Guaranty Corporation

Provides
special waivers to changes made by sections 201,
202, 211, and 212 of the PPA for benefit increases
under plan amendments adopted prior to June 30, 2005,
if the multi-employer plan is operating in compliance
with an agreement approved by the Pension Benefit
Guaranty Corporation prior to that date.

Requires
the Secretaries of Labor and the Treasury, and the
Executive Director of the PBGC to conduct a study
of the effect of the amendments made by this subtitle
on the operation and funding status of multi-employer
plans, and to report the results of the study, including
any recommendations for legislation, to Congress
by December 31, 2011.

Single-employer
plans which have unfunded vested benefits must pay
PBGC a variable rate premium. This section extends
the temporary variable rate premium methodology which
was set to expire for the 2005 plan year to 2007,
and makes permanent the plan termination premiums
enacted by the Deficit Reduction Act of 2005.

Section
403 Limitation on PBGC Guarantee of Shutdown and Other Benefits

Limits
PBGC liability in cases where plan amendments trigger "shutdown" or other "unpredictable contingent event" increased benefits by permitting the PBGC to phase in the increased benefits
over a five year period.

This
section requires the PBGC to expand the scope of
its missing participant program, which is currently
limited to terminating single employer defined benefit
plans. Future coverage would include terminating
single employer defined contribution plans, and terminating
defined benefit and defined contribution multi-employer
plans.

This
section requires the PBGC to amend its annual report
to detail specific parameters and values, and to
make specific comparisons in a summary of its Pension
Insurance Modeling System microsimulation model.

This
section requires multi-employer plan administrators
to provide specific actuarial and financial information,
including an estimation of potential withdrawal liabilities
for those obligated to contribute to the plan, upon
the written request of participants, beneficiaries,
unions, and contributing employers.

Expands
information covered by the annual Form 5500 report
of defined benefit plans. Additional information
is required for plans whose liabilities consist of liabilities under 2 or more plans from any preceding year, as well as additional statistical information for multi-employer plans.

This
section requires the DOL to provide annual Form 5500
report information in electronic form within 90 days
after receiving it. Employers (with intranet websites)
must also provide this data on their intranet websites.

This
section amends the filing requirements of Section
4010(b) of ERISA, substituting a percentage trigger
(less than 80% of the plan's funding target) in place
of a plan's asset value trigger ($50 million). Plans
failing to attain 80% of their funding target at
the end of their preceding year must provide the
PBGC a non-public report containing actuarial data,
potential termination liabilities, and employer financial
data.

Amends
Section 101(m) of ERISA by requiring plan administrators
to notify participants of their right to divest employer
securities 30 days before the first date on which
they are eligible to do so. The notification must
also explain the importance of diversifying retirement
assets.

This
section directs single and multi-employer plans to
regularly furnish benefit statements to participants.
Defined benefit plans must furnish the information
every three years or upon request. Defined contribution
plans must furnish the information annually, unless
the plan provides for participant investment direction,
in which case it must provide the information quarterly.
Failure to provide the information is subject to
penalty. Refer also to US Department of Labor Field Assistance Bulletin 2006-03.

Section
509 Notice to Participants or Beneficiaries of Blackout Periods

This
section eliminates the requirement that one-person
and partner-only plans provide "blackout notices" of periods during which participants are not permitted to self-direct investments.

The
Pension Protection Act of 2006 (PPA) added a number
of key exemptions to existing Internal Revenue Code
(Code) and Employee Retirement Income Security Act
(ERISA) prohibited transaction rules. The new exemptions
permit plans and fiduciaries, under specified conditions
and requirements: to provide investment advice for
a fee; to engage in block trades with previously
disqualified persons; to engage in "blind" securities transactions between a plan and a party-in-interest using electronic
networks; to enter into transactions with party-in-interest
plan service providers; to engage in foreign exchange
transactions with trustees and other parties-in-interest;
to engage in cross trading with other accounts managed
by the same adviser; to correct securities and commodities
transactions which inadvertently violated nonfiduciary
prohibited transaction rules; and to invest participant
directed assets in default investment arrangements.

Section
601 of Title VI of the Pension Protection Act of
2006 provides prohibited transaction exemptions
under ERISA Section 408(b)(14), and Section 4975(d)(17) of the IRC of 1986. Under specific conditions, investment
advice for a fee previously prohibited to certain
parties-in-interest may be provided to participants
and beneficiaries of a defined contribution plan
who direct the investment of their accounts under
the plan, and to beneficiaries of IRAs, HSAs, Archer
MSAs, and Coverdell education savings accounts.
If the requirements under the provision are met,
the following are exempt from prohibited transaction
treatment: (1) the provision of investment advice;
(2) an investment transaction (i.e., a sale, acquisition,
or holding of a security or other property) pursuant
to the advice; and (3) the direct or indirect receipt
of fees or other compensation in connection with
the provision of the advice or an investment transaction
pursuant to the advice. The exemptions apply in
connection with investment advice provided by a fiduciary adviser under an "eligible investment advice arrangement.&quot An eligible investment advice arrangement is an arrangement (1) meeting certain
requirements (discussed below) and (2) which either
(a) provides that any fees (including any commission
or compensation) received by the fiduciary adviser
for investment advice or with respect to an investment
transaction with respect to plan assets do not
vary depending on the basis of any investment option
selected, or (b) uses a computer model under an
investment advice program as described below in
connection with the provision of investment advice
to a participant or beneficiary. In the case of
an eligible investment advice arrangement with
respect to a defined contribution plan, the arrangement
must be expressly authorized by a plan fiduciary
other than (1) the person offering the investment
advice program, (2) any person providing investment
options under the plan, or (3) any affiliate of (1) or (2). Although employers and
plan fiduciaries retain fiduciary responsibility
under ERISA for the prudent selection and periodic
review of a fiduciary advisers, they are not under
the duty to monitor the specific investment advice
given by a fiduciary adviser. Moreover, the exemption
also provides that fiduciary responsibility provisions
of ERISA do not preclude the use of plan assets
to pay for reasonable expenses in providing investment
advice. Refer also to US Department of Labor Field Assistance Bulletin 2007-01.

Fiduciary
Adviser

A “fiduciary
adviser” is defined as a person who is a fiduciary of the plan by reason of the provision
of investment advice to a participant or beneficiary
and who is also: (1) registered as an investment
adviser under the Investment Advisers Act of 1940
or under State laws; (2) a bank, a similar financial
institution supervised by the United States or
a State, or a savings association (as defined under
the Federal Deposit Insurance Act), but only if
the advice is provided through a trust department
that is subject to periodic examination and review
by Federal or State banking authorities; (3) an
insurance company qualified to do business under
State law; (4) registered as a broker or dealer
under the Securities Exchange Act of 1934; (5)
an affiliate of any of the preceding; or (6) an
employee, agent or registered representative of
any of the preceding who satisfies the requirements
of applicable insurance, banking and securities
laws relating to the provision of advice. A person who develops the computer model
or markets the investment advice program or computer
model is treated as a person who is a plan fiduciary
by reason of the provision of investment advice
and is treated as a fiduciary adviser, except that
the Secretary may prescribe rules under which only
one fiduciary adviser may elect treatment as a
plan fiduciary. “Affiliate” means an affiliated person as defined under section 2(a)(3) of the Investment
Company Act of 1940.

Eligible
Investment Advice Arrangement Requirements:

Investment
Advice Program Using Computer Model
Arrangements providing investment advice pursuant to a computer model (1)
apply generally accepted investment theories that take into account the
historic returns of different asset classes over defined periods of time,
(2) use relevant information about the participant or beneficiary, (3)
use prescribed objective criteria to provide asset allocation portfolios
comprised of investment options under the plan, (4) operate in a manner
that is not biased in favor of any investment options offered by the fiduciary
adviser or related person, and (5) take into account all the investment
options under the plan in specifying how a participant's or beneficiary's
account should be invested without inappropriate weighting of any investment
option. An eligible investment expert must certify, before the model is
used and in accordance with rules prescribed by the Secretary of Labor,
that the model meets these requirements. The certification must be renewed
if there are material
changes to the model as determined under regulations. In addition, if a
computer model is used, the only investment advice that may be provided
is the advice generated by the computer model, and any investment transaction
pursuant the advice must occur solely at the direction of the participant
or beneficiary. This requirement does not preclude the participant or beneficiary
from requesting other investment advice, but only if the request has not
been solicited by any person connected with carrying out the investment
advice arrangement.

Audit
Requirements
With respect to a defined contribution plans, an annual audit of the arrangement
for compliance with applicable requirements must be conducted by an independent
auditor (unrelated to the person offering investment advice or any person
providing investment options under the plan) who has appropriate technical
training or experience and proficiency and who so represents in writing.
The auditor must issue a report of the audit results to the fiduciary that
authorized use of the arrangement. In the case of an eligible investment
advice arrangement with respect to IRAs, an audit is required at such times
and in such manner as prescribed by the Secretary of Labor.

Notice
Requirements
Before providing investment advice, a fiduciary adviser must provide written
notice (which may be in electronic form) containing various information
to the recipient of the advice, including information relating to: (1)
the role of any related party in the development of the investment advice
program or the selection of investment options under the plan; (2) past
performance and rates of return for each investment option offered under
the plan; (3) any fees or other compensation to be received by the fiduciary
adviser or affiliate; (4) any material affiliation or contractual relationship
of the fiduciary adviser or affiliates in the security or other property
involved in the investment transaction; (5) the manner and under what circumstances
any participant or beneficiary information will be used or disclosed; (6)
the types of services provided by the fiduciary adviser in connection with
the provision of investment advice; (7) the adviser’s
status as a fiduciary of the plan in connection with the provision of the
advice; and (8) the ability of the recipient of the advice separately to
arrange for the provision of advice by another adviser that could have
no material affiliation with and receive no fees or other compensation
in connection with the security or other property. This information must
be maintained in accurate form and must be provided to the recipient of
the investment advice, without charge, on an annual basis, on request,
or in the case of any material change. Any notification must be written
in a clear and conspicuous manner, calculated to be understood by the average
plan participant, and sufficiently accurate and comprehensive so as to
reasonably apprise participants and beneficiaries of the required information.
The Secretary is directed to issue a model form for the disclosure of fees
and other compensation as required by the provision. The fiduciary adviser
must maintain for at least six years any records necessary for determining whether the requirements
for the prohibited transaction exemption were met. A prohibited transaction
will not be considered to have occurred solely because records were lost
or destroyed before the end of six years due to circumstances beyond the
adviser’s control.

Other
Requirements
In order for the exemption to apply, the following additional requirements
must be satisfied: (1) the fiduciary adviser must provide disclosures applicable
under securities laws; (2) an investment transaction must occur solely
at the direction of the recipient of the advice; (3) compensation received
by the fiduciary adviser or affiliates in connection with an investment
transaction must be reasonable; and (4) the terms of the investment transaction
must be at least as favorable to the plan as an arm's length transaction
would be.

Section
611(a) of Title VI of the Pension Protection Act
of 2006 provides prohibited transaction exemptions
under ERISA Section 408(b)(15), and Section 4975(d)(18) of the IRC of 1986. The exemptions provide statutory
relief for a purchase or sale of securities or
other property (as determined by the Secretary
of Labor) between a plan and a disqualified person (other than a fiduciary) involving a block trade if: (1) the transaction involves a block trade; (2)
at the time of the transaction, the interest of
the plan (together with the interests of any other
plans maintained by the same plan sponsor) does
not exceed 10 percent of the aggregate size of
the block trade; (3) the terms of the transaction,
including the price, are at least as favorable
to the plan as an arm’s length transaction with an unrelated party; and (4) the compensation associated
with the transaction is no greater than the compensation
associated with an arm’s length transaction with an unrelated party. For purposes of the provision,
a block trade is defined as any trade of at least
10,000 shares or with a market value of at least
$200,000 that will be allocated across two or more
unrelated client accounts of a fiduciary. Examples
of property other than securities that the Secretary
of labor may apply the exemption to include futures
contracts and currency.

Any
fiduciary (including, but not limited to, any administrator,
officer, trustee, or custodian), counsel, or employee
of such employee benefit plan;

A
person providing services to such plan;

An
employer any of whose employees are covered by
such plan;

An
employee organization any of whose members are
covered by such plan;

An
owner, direct or indirect, of 50 percent or more
of -

The
combined voting power of all classes of stock
entitled to vote or the total value of shares
of all classes of stock of a corporation.

The
capital interest or the profits interest
of a partnership, or

The
beneficial interest of a trust or unincorporated
enterprise, which is an employer or an employee
organization described in subparagraph (C)
or (D);

A
relative (as defined in paragraph (15)) of any
individual described in subparagraph (A), (B),
(C), or (E);

A
corporation, partnership, or trust or estate of
which (or in which) 50 percent or more of -

The
combined voting power of all classes of stock
entitled to vote or the total value of shares
of all classes of stock of such corporation,

The
capital interest or profits interest of such
partnership, or

The
beneficial interest of such trust or estate,
is owned directly or indirectly, or held
by persons described in subparagraph (A),
(B), (C), (D), or (E);

An
employee, officer, director (or an individual having
powers or responsibilities similar to those of
officers or directors), or a 10 percent or more
shareholder directly or indirectly, of a person
described in subparagraph (B), (C), (D), (E), or
(G), or of the employee benefit plan; or

A
10 percent or more (directly or indirectly in capital
or profits) partner or joint venturer of a person
described in subparagraph (B), (C), (D), (E), or
(G).

A "fiduciary" is
defined in ERISA Section 3(21) and in IRC Section
4975(e)(3) as any person who: (1) exercises any authority
or control respecting management or disposition of
the plan’s assets, (2) renders investment advice for a fee or other compensation with
respect to any plan moneys or property, or has the
authority or responsibility to do so, or (3) has
any discretionary authority or responsibility in
the administration of the plan.

Section
611(c) of Title VI of the Pension Protection Act
of 2006 provides prohibited transaction exemptions
under ERISA Section 408(b)(16), and Section 4975(d)(19) of the IRC of 1986. Present law does not provide a
statutory prohibited transaction exemption for transactions
made through an electronic communication network,
but such transactions may be permitted if the parties
are not known to each other (a “blind” transaction). Section 611(c) provides prohibited transaction exemptions for
transactions involving the purchase or sale of securities
(or other property as determined under regulations,
including futures contracts and currency) between
a plan and a party in interest if:

the
transaction is executed through an electronic communication
network, alternative trading system, or similar
execution system or trading venue that is subject
to regulation and oversight by: (a) the applicable
Federal regulating entity, or (b) a foreign regulatory
entity, as the Secretary may determine under regulations;

either:
(a) neither the execution system nor the parties
to the transaction take into account the identity
of the parties in the execution of trades, or (b)
the transaction is effected under rules designed
to match purchases and sales at the best price
available through the execution system in accordance
with rules of the SEC or other relevant governmental
authority;

the
price and compensation associated with the purchase
and sale are not greater than an arm’s length transaction with an unrelated party;

if
the disqualified person has an ownership interest in the system or venue, the system or venue has been
authorized by the plan sponsor or other independent
fiduciary for this type of transaction; and

not
less than 30 days before the first transaction
of this type, a plan fiduciary is provided written
notice of the execution of the transaction through
the system or venue.

Section
611(d) of Title VI of the Pension Protection Act
of 2006 provides prohibited transaction exemptions
from ERISA Sections 406(b)(1)(A),(B), and (D), under
ERISA Section 408(b)(17), and Section 4975(d)(20) of the IRC of 1986. The exemptions provide statutory
relief for transactions involving the sale of property,
loans, and transfers or use of plan assets between
a plan and a party in interest (individuals or entities
treated under ERISA as a "party in interest" solely by reason of providing the services in question, or solely by having
certain relationships with a service provider). The
exemption is conditioned by the plan receiving no
less, nor paying more, than "adequate consideration" for the services provided. The term "adequate consideration" (ERISA Section 3(18)) includes, (a) in the case of a security for which there
is a generally recognized market, the price of the
security prevailing on a national securities exchange
registered under the Securities Exchange Act of 1934,
or, if the security is not traded on such a national
securities exchange, a price not less favorable to
the plan than the offering price for the security
as established by the current bid and asked prices
quoted by persons independent of the issuer and of
any disqualified person, and (b) in the case of an
asset other than a security, the fair market value
of the asset as determined in good faith by a fiduciary
or named fiduciaries in accordance with regulations.
The exemption does not apply to a fiduciary or affiliate
having or exercising investment discretion or investment
advice over plan assets.

Section
611(e) of Title VI of the Pension Protection Act
of 2006 provides foreign exchange prohibited transaction
exemptions from ERISA Section 406 under ERISA Section 408(b)(18), and Section 4975(d)(21) of the IRC of 1986. Present law does not provide a
statutory prohibited transaction exemption for foreign
exchange transactions. Section 611(e) provides a
prohibited transaction exemption under ERISA and
the Code for foreign exchange transactions between
a bank, broker-dealer (or an affiliate of either),
and a plan in connection with the sale, purchase,
or holding of securities or other investment assets
(other than a foreign exchange transaction unrelated
to any other investment in securities or other investment
assets) if:

at
the time the foreign exchange transaction is entered
into, the terms of the transaction are not less
favorable to the plan than terms generally available
in comparable arm’s length foreign exchange transactions between unrelated parties, or terms afforded
by the bank, broker-dealer (or any affiliate thereof),
in comparable arm’s-length foreign exchange transactions involving unrelated parties;

the
exchange rate used for a particular foreign exchange
transaction does not deviate by more than three
percent from the interbank bid and asked rates
(at the time of the transaction for transactions
of comparable size and maturity) as reported by
independent foreign currency exchange services;
and

the
bank, broker-dealer (and any affiliate of either),
does not have investment discretion or provide
investment advice with respect to the transaction.

Section
611(g) of Title VI of the Pension Protection Act
of 2006 provides prohibited transaction exemptions
from ERISA Sections 406(b)(1)(A), and 406(b)(2),
under ERISA Section 408(b)(19), and Section 4975(d)(22) of the IRC of 1986. The provision provides prohibited
transaction exemptions under ERISA and the Code for
transactions involving the purchase and sale of a
security between a plan (generally a plan whose assets
aggregate $100 million or greater) and any other
account managed by the same investment manager if
the following requirements are met:

the
transaction is a purchase or sale (for no consideration
other than cash payment) against prompt delivery
of a security (for which market quotations are
readily available);

the
transaction is effected at the independent current
market price of the security;

no
brokerage commission fee (except for customary
transfer fees which must be disclosed) or other
remuneration is paid in connection with the transaction;

a
fiduciary (other than the investment manager engaging
in the cross trades or any affiliate) for each
plan participating in the transaction authorizes
in advance of any cross-trades (in a document separate
from any other written agreement) the investment
manager to engage in cross trades at the investment
manager’s discretion, after the fiduciary has received disclosure: (a) regarding the
conditions under which cross trades may take place
(in a disclosure separate from any other agreement
or disclosure involving the asset management relationship),
(b) which includes the investment manager's written
policies and procedures;

each
plan participating in the transaction has assets
of at least $100,000,000, except that, if the assets
of a plan are invested in a master trust containing
the assets of plans maintained by employers in
the same controlled group, the master trust has
assets of at least $100,000,000;

the
investment manager provides to the plan fiduciary
who has authorized cross trading a quarterly report
detailing all cross trades executed by the investment
manager in which the plan participated during such
quarter, including the following information as
applicable: (a) the identity of each security bought
or sold, (b) the number of shares or units traded,
(c) the parties involved in the cross trade, and
(d) the trade price and the method used to establish
the trade price;

the
investment manager does not base its fee schedule
on the plan’s consent to cross trading and no other service (other than the investment opportunities
and cost savings available through a cross trade)
is conditioned on the plan’s consent to cross trading;

the
investment manager has adopted, and cross trades
are effected in accordance with, written cross
trading policies and procedures that are fair and
equitable to all accounts participating in the
cross-trading program, including (a) a description
of the manager’s pricing policies and procedures, and (b) the manager’s policies and procedures for allocating cross trades in an objective manner
among accounts participating in the cross-trading
program; and

the
investment manager has designated an individual
responsible for (a) periodically reviewing purchases
and sales to ensure compliance with the written
policies and procedures and, (b) following such
review, the individual must issue an annual written
report no later than 90 days following the period
to which it relates, signed under penalty of perjury,
to the plan fiduciary who authorized the cross
trading, (i) describing the steps performed during
the course of the review, (ii) the level of compliance,
and (iii) any specific instances of noncompliance.
The written report must also notify the plan fiduciary
of the plan’s right to terminate participation in the investment manager’s cross-trading program at any time.

The
Secretary of Labor, after consultation with the Securities
and Exchange Commission, is directed to issue regulations
regarding the content of policies and procedures
required to be adopted by an investment manager under
the requirements for the exemption within 180 days
from date of enactment (August 17, 2006).

Section
612 of Title VI of the Pension Protection Act of
2006 provides prohibited transaction exemptions from
ERISA Section 406(a) under ERISA Section 408(b)(20), and Section 4975(d)(23) of the IRC of 1986. ERISA and the Code prohibit certain
transactions between an employer-sponsored retirement
plan and a disqualified person (referred to as a “party in interest” under ERISA). For purposes of these rules, the “amount involved” generally means the greater of (1) the amount of money and the fair market value
of the other property given, or (2) the amount of
money and the fair market value of other property
received by the plan. The terms “correction” and “correct” mean, with respect to a prohibited transaction, undoing the transaction to the
extent possible (but in any case placing the plan
in a financial position not worse than the position
in which it would be if the disqualified person were
acting under the highest fiduciary standards). For
purposes of the prohibited transaction rules of the
Code and ERISA, a transaction involving the sale
of securities is considered to occur when the transaction
is settled (the actual change in ownership of the
securities). Under current practice, securities transactions
are commonly settled 3 days after the agreement to
sell is made. Present law does not provide a statutory
prohibited transaction exemption that is based solely
on correction of the transaction. Section 612 provides
a prohibited transaction exemption under ERISA and the Code for a transaction in connection with the
acquisition, holding, or disposition of any security
or commodity if the transaction is corrected within
a certain period, generally within 14 days of the
date the disqualified person (or other person knowingly
participating in the transaction) discovers, or reasonably
should have discovered, the transaction was a prohibited
transaction. For this purpose, the term “correct” means, with respect to a transaction:

to
undo the transaction to the extent possible and
in any case to make good to the plan or affected
account any losses resulting from the transaction;
and

to
restore to the plan or affected account any profits
made through the use of assets of the plan.

If
the exemption applies, no excise tax may be assessed
with the transaction, any tax assessed may be abated,
and any tax collected may be credited or refunded
as a tax overpayment. The exemption does not apply
to any transaction between a plan and a plan sponsor
or its affiliates that involves the acquisition or
sale of an employer security or the acquisition,
sale, or lease of employer real property. In addition,
in the case of a disqualified person (or other person
knowingly participating in the transaction), the
exemption does not apply if, at the time of the transaction,
the person knew (or reasonably should have known)
that the transaction would constitute a prohibited
transaction.

R.7.c.
Subtitle C - Fiduciary and Other Rules

Section
621 Inapplicability of Relief from Fiduciary Liability During Suspension of Ability
of Participant or Beneficiary to Direct Investments

This
section removes a plan fiduciary's protection during
blackout periods when participants cannot self-direct
investments unless the blackout period relates to
a qualified change in investment options.

Section
624 of Title VI of the Pension Protection Act of
2006 expands protections to fiduciaries of plans
that provide for participant investment direction
where a participant fails to affirmatively elect
an investment option under the plan. It adds a new
subsection to the fiduciary duties standards of ERISA
(Section 404(c)(5)), which treats participants as
exercising investment control over their account
assets if the assets are invested in a default arrangement
in accordance with Department of Labor regulations.
On October 24, 2007 the DOL issued a final rule which
would add subsection 2550.404c–5 (305KB PDF file - PDF Help) to 29 CFR Part 2550. The regulation provides guidance on the appropriateness
of investments designated as default investments
under the default investment arrangement, including
guidance regarding mixes of default investments and
asset classes which the Secretary of Labor considers
consistent with long-term capital appreciation or
long-term capital preservation, and the designation
of other default investments. The proposed rule requires
notification of a participant’s rights and obligations under the arrangement. Plan administrators are required
to give each participant notice of their rights and
obligations under the arrangement within a reasonable
period before the plan year begins. The notice must
include an explanation of a participant’s right to exercise investment control over the participant's assets in the plan.
The participant must have a reasonable period of
time, after receipt of the notice and before the
assets are first invested, to make an investment
election. The notice must also explain how the participant's
assets will be invested in the absence of any investment
election.

Requires
the Secretary of Labor to issue regulations by August
2007 which clarify the selection of an annuity contract
as an optional form of distribution to a participant or beneficiaryfrom individual account plans.

This
section enacts rules for testing defined benefit
plans which are converted to hybrid plans for age
discrimination under the Code, ERISA, and the Age
Discrimination in Employment Act (ADEA). “Wearaway” of participant benefits at conversion is prohibited. (“Wearaway” is a transitional device offered employees with long service when
traditional defined benefit pension plans are converted
to cash balance plans. In the past, "wearaway" has provided employees the option of receiving the greater of their frozen benefit
under the phased out pension plan, or their total
benefit under a cash balance plan. Employees near
early retirement age may accrue little or nothing
for a prolonged period under a cash balance plan
until the phased out plan benefit is worn away. This
is because the value of the traditional pension plan
benefit may be greater than future accruals under
cash balance plans.) Age discrimination prohibitions will not be treated as violated upon conversion
if a participant's accrued benefit is equal to or greater than that of any "similarly situated younger individual." Benefit accrual standards apply to plan conversion amendments beginning June
29, 2005. IRS Revenue Ruling Notice 2007–6 provides transitional guidance on the requirements of sections 411(a)(13) and
411(b)(5) of the Code as added by Section 701(b) of the Pension Protection Act of 2006. Refer also to IRS Revenue Ruling Notice 2007-06.

This
section requires the Secretary of the Treasury to
issue regulations for the application of this title "in cases where the conversion of a plan to an applicable defined benefit plan
is made with respect to a group of employees who
become employees by reason of a merger, acquisition,
or similar transaction."

Increases
the maximum deductible amount for single employer
plan contributions equal to the cost of benefits
accrued plus the amount needed to meet the funding
target. Employers may also contribute a cushion for
the plan year equal to 50% of the funding target
plus "the amount by which the funding target for the plan year would increase if the
plan were to take into account ...increases in compensation
which are expected to occur in succeeding plan years."

Amends
the Code to permit participants of state and local
retirement plans to purchase of service credits from
prior government employers. It also allows trustee
to trustee transfers from 403(b) or 457(e) plans
to purchase service credits.

Beginning
in 2007, this section permits individuals with adjusted
gross income under $100,000 to roll over money from
qualified defined benefit and defined contribution
plans, 403(b) annuity, or 457 plan to a Roth IRA.
This eliminates the previous requirement of first
rolling money into a traditional IRA, before performing
a second rollover into a Roth IRA. The money rolled
over remains includible in gross income and subject
to tax, but it is exempt from the 10% early withdrawal
penalty.

This
section permits individuals who received distributions
from a section 457(b) plan of the Code prior to the
amendments of the Small Business Job Protection Act
of 1996 to participate in an eligible deferred compensation
plan under section 457.

This
section directs the Secretary of the Treasury to
issue regulations to modify the hardship regulations
which permit a hardship or unforeseeable financial
emergency distribution from section 401(k), section
403(b), and section 457(b) plans. Refer also to IRS
Pension Protection Act Changes Notice 2007-7.

Section
827 Penalty-Free Withdrawals from Retirement Plans for Individuals Called to Active
Duty for at Least 179 Days

This
section amends Code section 72(t) to eliminate the
10% early withdrawal penalty for "qualified reservist distributions" (for reservists called to active duty for more than 179 days between September
11, 2001 and December 31, 2007). The distribution
must be made from from elective deferrals under a
401(k) or 403(b) plan, or from a traditional or Roth
IRA during the active duty period. The distribution
may be contributed into an IRA outside the maximum
contribution limits within two years after the active
duty ends.

Section
828 Waiver of 10 Percent Early Withdrawal Penalty Tax on Certain Distributions of
Pension Plans for Public Safety Employees

This
section amends the Code to permit nonspouse beneficiaries
to roll over distributions from qualified retirement
plans, section 403(b) and 457(b) governmental plans
to an IRA. The IRA is an "inherited" individual retirement account, subject to minimum distribution rules applicable
to IRA beneficiaries, rather than the five-year rule
for distributions from a qualified plan. Refer also
to IRS Pension Protection Act Changes Notice 2007-7, and DOL Amendments to Safe Harbor for Distributions From Terminated Individual Account Plans and Termination of Abandoned Individual
Account Plans.

This
section permits individuals aged 50 and over who
worked for a bankrupt employer "subject to an indictment or conviction resulting from business transactions related
to such case," and whose employer had a least a 50% match in the form of employer stock in
its 401(k) plan, to make additional IRA catch-up
contributions of up to three times the otherwise
applicable amount. The contributions can be made
for years 2007, 2008, and 2009.

Section
832 Determination of Average Compensation for Section 415 Limits

This
section modifies the compensation test under section
415(b)(3) of the Code to permit compensation earned
while working for the employer, not only while a
plan participant to be counted towards defined benefit
plan benefit limits.

This
section provides for indexing adjusted gross income
levels for the Saver’s Credit by modifying section 25B of the Code to index gross income limits for claiming the Saver's Credit. It also amends sections 219(g) and 408A(c)(3)
of the Code to provide inflation adjustments (in
$1,000 increments) to the income limits for determining eligibility for traditional IRA and Roth IRA, respectively.

This
section lowers the required "excess assets" threshold (from 125% to 120%) to permit the transfer of assets from single employer
defined benefit plans to retiree medical accounts
covered by the same plan to defray liabilities of
future retiree medical costs. During the transfer
period, the defined benefit plan must be kept at
the minimum funding level.

This
section applies the right of single employer plans
to transfer "excess assets" to a health plan to multi-employer pension plans. An identical 120% "excess assets" threshold is needed to permit the transfer. During the transfer period, the
defined benefit plan must be kept at the minimum
funding level.

This
section amends 419A(c) of the Code to permit a plan
maintained by "bona fide associations" (as defined in section 2791(d)(3) of the Public Health Service Act) to add reserves
to the plan of up to 35% of qualified direct annual
costs for medical benefits (other than post-retirement
medical benefits).

Section
844 Treatment of Annuity and Life Insurance Contracts with a Long-Term Care Insurance
Feature

This
section permits annuity contracts to offer long-term
care (LTC) contracts, and provides special tax treatment
for the LTC component of contract. Among these is
the ability to use the cash value of the contract
to pay for the LTC benefit.

This
section amends section 402 of the Code to allow eligible
retired "public safety officers" (as defined by section 1204(9)(A) of the Omnibus Crime Control and Safe Streets
Act of 1968) to elect to exclude up to $3,000 of
their retirement benefits from federal gross income
if it is applied toward the cost of health insurance
or long term care insurance premiums. Refer also
to IRS Pension Protection Act Changes Notice 2007-7.

This
section conforms the method used to adjust annuities
paid to survivors of Tax Court judges to the method
used to adjust the cost-of-living increases paid
under the Civil Service Retirement System.

Section
852 Cost of Life Insurance Coverage for Tax Court Judges Age 65 or Over

This
section directs the Tax Court to pay increases in
employee premiums under the Federal Employee Group
Life Insurance program on behalf of Tax Court judges
age 65 or over.

This
section confirms the statutory held by the Tax Court
to apply equitable recoupment under Section 6214(b)
of the Code "to same extent that it is available in civil tax cases before the district courts
of the United States and the United States Court
of Federal Claims.''

This
section authorizes the Tax Court to use fees to provide
services which assist pro se taxpayers taxpayers
appearing before the Court.

R.9.f.
Subtitle F - Other Provisions

Section
861 Extension to All Governmental Plans of Current Moratorium on Application of
Certain Nondiscrimination Rules Applicable to State
and Local Plans

This
section extends the moratorium on the IRS disqualifying
state and local governmental plans on the basis of
violating nondiscrimination rules using by as a comparison
the nondiscriminatory provisions of federal plans.

This
section eliminates the limit on transfers coal employers
are permitted to make from black lung disability
trusts to pay for accident and health benefits or
premiums.

Section
863 Treatment of Death Benefits from Corporate-Owned Life Insurance

This
section requires proceeds from corporate owned life
insurance to be treated as income unless the insured
was an employee within 12 months of death, or the
insured was a “highly compensated employee” (employees owning more than 5%, directors, and employees in the top 35% salary
category). The sole exception involves proceeds paid
to an insured’s beneficiary and which are used to buy back an equity interest owned at the
time of death.

Section
864 Treatment of Test Room Supervisors and Proctors who Assist in the Administration
of College Entrance and Placement Exams

This
section amends Section 530 of the Revenue Reconciliation
Act of 1978 to treat test room supervisors and proctors
who assist in the administration of college entrance
examinations as independent contractors.

This
section allows qualified church plans (under section
401(a) of the Code) which self-annuitize distributions
to avoid minimum distribution violations if the plans
otherwise comply with the requirements of section
403(b)(9) of the Code.

Section
866 Exemption for Income from Leveraged Real Estate Held by Church Plans

This
section exempts church annuity plans from the imposition
of unrelated business income tax on leveraged real
estate investments.

Amends
Section 401(a) of the Code by requiring qualified
pension, profit-sharing, and stock bonus plans which
invest in "publicly traded employer securities" to offer plan participants at least 3 investment options, other than employer
securities, to "direct the proceeds from the divestment of employer securities...each of which
is diversified and has materially different risk
and return characteristics." Participants must be given the opportunity to divest and reinvest employer securities
at least quarterly. Existing plans may phase in diversification
of employer securities over a three year period.
However, participants aged 55 or over who have completed
at least 3 years of service are exempted from the
three year phase in period. The new diversification
requirements are not applicable to ESOPs which do
not provide for elective, employee, or matching contributions,
nor do they apply to "one participant retirement plans."

Amends
Section 401(k) of the code to provide for "qualified automatic contribution arrangements" designed to automatically enroll employees in a retirement plan unless they
affirmatively elect not to participate in the plan.
At a minimum, these plans must provide for (a) automatic
deferral of compensation, (b) nonelective contributions
and a two year vesting period, and (c) an annual
notice of participant rights. Investments in these
plans qualify for fiduciary relief under a Department
of Labor Rule (Section 2550.404c–5 305KB PDF file - PDF Help). The proposed rule provides fiduciary relief for investments in "qualified default investment alternatives" in the absence of the participant's investment direction.

Adds
section 414(x) to the Code creating new "Combined Defined Benefit Plans" for employers with 500 or fewer employees. The combined plan is governed under
one document which provides for both a defined benefit
plan, and a deferred contribution plan with an automatic
enrollment feature. Assets of the plans are held
in a single trust, but must be identifiable and allocated
to each of the defined benefit and defined contribution
portions of the plan.

Amends
Section 411(a) of the Code to accelerate the vesting
period on employer contributions to defined contribution
plans. Plans must either provide for 100 percent
vesting after an employee attains three years of
service, or incremental vesting within a two to six
year period as defined. In the case of stock ownership
plans which had loans outstanding as of September
26, 2005, these changes do apply before the earlier
of the date on which the loan is fully repaid, or
the date on which the loan was scheduled to be fully
repaid. Refer also to IRS Pension Protection Act
Changes Notice 2007-7.

Amends
sections 401(a) of the Code and 3(2)(A) of ERISA
to permit in-service distributions from defined benefit
plans to individuals age 62 and over. While this
amendment permits defined benefit plans to do so,
it does not require them provide this form of benefit.

Amends
Sections 414(d) of the Code and 3(32) of ERISA to
treat plans maintained by Indian tribal governments
as governmental plans. It also applies the special
benefit limitations under Code Section 415(b)(2)(H),
the pick up contributions under Code Section 414(h),
and the special benefit limitations under Code Section
415(b)(10), each of which is applicable to police
and firefighters of a state or political subdivision,
to such plans.

Section
1001 Regulations on Time and Order of Issuance of Domestic Relations Orders

This
section requires the Secretary of Labor to issue
regulations under Sections 414(p) of the Code and
206(d)(3) of ERISA. The regulations will clarify
that a domestic relations order "shall not fail to be treated as a qualified domestic relations order solely because
(A) the order is issued after, or revises, another
domestic relations order or qualified domestic relations
order; or (B) of the time at which it is issued..."

This
section ensures that a surviving spouse’s railroad retirement benefit annuity, which is received pursuant to a "divorce decree, annulment, or legal separation or the terms of any court-approved
property settlement incident to any such court decree,
shall not be terminated upon the death of the...(retired
employee)...unless such termination is otherwise
required by the terms of such court decree.''

This
section modifies Section 417(a)(1)(A) of the Code
to require plans which offer a "qualified optional survivor annuity" to provide as an option a joint and survivor benefit which is equal to at least
75% of the joint benefit.

This
section requires the Secretary of the Treasury to
eliminate the annual Form 5500 reporting requirements
for one person plans holding less than $250,000 in
assets, and requires the Secretaries of Labor and
Treasury to simplify annual reporting requirements
for plans with fewer than 25 participants.

Section
1104 Voluntary Early Retirement Incentive and Employment Retention Plans Maintained
by Local Educational Agencies and Other Entities

This
section amends Sections 457(e)(11) of the Code, 4(l)(1)
of the Age Discrimination in Employment Act of 1967
(ADEA), and 3(2)(B) of ERISA to treat payments made
from certain voluntary early retirement incentive
plans (VERIPs), employment retention plans of educational
agencies, and nongovernmental VERIPs "as a bona fide severance pay plan ...payments or supplements to the extent such
payments or supplements could otherwise have been
provided under such defined benefit plan." The effect of the changes is to defer taxation of the payments.

Section
1105 No Reduction in Unemployment Compensation as a Result of Pension Rollovers

Amends
Section 3304(a) of the Code relating to State unemployment
laws. The amendment states "Compensation shall not be reduced under paragraph (15) for any pension, retirement
or retired pay, annuity, or similar payment which
is not includible in gross income of the individual
for the taxable year in which paid because it was
part of a rollover distribution." The effect of the change is to prohibit the reduction of unemployment benefits
on the basis of pension distributions which were
rolled over.

This
section amends Section 408(d) of ERISA by adding
subsection (8), which provides that distributions
from an IRA after an individual attains the age of
70 1/2 made directly by a trustee to organizations
described in Section 170(b)(1)(A) of the Code is
excluded from gross income. The exclusion is only
available to the extent that the distribution would
otherwise have been includible in gross income, and
only if the contribution would otherwise qualify
for a charitable contribution deduction under Section
170 of the Code. This provision expires on December
31, 2007 and, therefore, the exclusions are only
available for plan years 2006 and 2007 (unless extended
by Congress). The exclusions may not exceed $100,000
in either year. Refer also to IRS Pension Protection
Act Changes Notice 2007-7.